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Revisiting economic effectiveness of foreign aid: The case of Japanese aid to China

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  • Jing Shao
  • Maojun Wang

Abstract

Over the years, several studies have assessed whether foreign aid plays an active role in promoting economic growth of the recipient country, but to date, it is still an unresolved question. Based on the case of Japan's aid to China, this paper uses the geographically and temporally weighted regression (GTWR) model to evaluate the economic effect of aid, compared with the ordinary least squares (OLS) and geographically weighted regression (GWR) models. The results reveal the following: (1) In the OLS model, Japanese aid to China surprisingly hampered China's economic growth. (2) In the GWR model, the Japanese aid's effectiveness appears a noticeable regional differentiation in line with both the orientation and extent of aid. (3) In the GTWR model, however, the economic effectiveness of aid changes both over time and in space. The spatiotemporal heterogeneous relationship between foreign aid and economic growth in a recipient country challenges the traditional belief that aid either can or cannot promote the recipient country's economic growth. This finding provides a new perception of the economic effectiveness of aid.

Suggested Citation

  • Jing Shao & Maojun Wang, 2022. "Revisiting economic effectiveness of foreign aid: The case of Japanese aid to China," The World Economy, Wiley Blackwell, vol. 45(7), pages 2284-2304, July.
    • Handle: RePEc:bla:worlde:v:45:y:2022:i:7:p:2284-2304
    DOI: 10.1111/twec.13224
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